Lenzing Ag Ord

Gentlemen, welcome to the Lensing analyst call. I'm Moritz, the call operator. I would like to remind you that all participants will be in the listen-only mode and the conference is being recorded. The presentation will be followed by a question-and-answer session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Stefan Zilauf, CEO. Please go ahead, sir.

Thanks a lot, operator. Ladies and gentlemen, a very warm welcome to the presentation of Lansing's results for the first quarter 2024. With me today is Nico Reiner, our CFO. Let's go through our agenda for today. We will start, as you know from former calls, with the executive summary, followed by a market update. Nico Reiner will guide you through the financials afterwards, and I will share an update on our holistic performance program as well as the outlook. We will end, as always, with a Q&A. Let's start with an overview of the key developments. To sum it up, the market recovery is still lacking. But we, as Lansing, see continued and increasing positive impacts from our holistic performance program, both on top line and bottom line. In a nutshell, the market doesn't help, so we have taken our fate into our own hands by executing the performance programs. The generic market relevance for us still show little signs of recovery and especially prices continue to remain under pressure. On a positive note, we see a good start of our performance program in 2024 with further increase in fiber sales volumes and cost savings ahead of plan. The program had a strong start and Walter Bickel joined us a couple of weeks ago to further advance and accelerate it, which will allow Nico Reiner, Christian Skillig, and myself to focus more on the core tasks, particularly on sales growth, operations, and strategic direction. Let's look now at our financial results, which I clearly consider showing positive developments. Revenue increased by 6% versus Q1 2023 to 658 million euros. EBITDA significantly increased by 42 million compared to 30 million in Q1 2023 to 71 million euros. Net results reached minus 32 million euros, which compares to minus 80 million euros in quarter one 2023. On a truly positive note, free cash flow was at plus 87 million euros or more than 200 million higher compared to the first quarter 2023. It was for the third time in a row that a quarter has shown positive free cash flow, leading to a further decrease of our net financial debt. So overall, our financials did clearly beat our initial assumptions for quarter one, despite the lack of market recovery. Looking at the outlook. We continue to have a laser focus on exploiting the full potential of the performance program and further drive both top and bottom line. Q1 2024 delivered better than expected for us. Even though we have a cautious outlook on the generic fiber market development, we see for ourselves a good and healthy order book in the beginning of quarter two of this year. With regard to pricing, we expect ourselves to increase average prices driven by performance program and our specialization strategy. All in all, we are well on track with the performance program and also with our strengthened order book. We expect to further improve our operational results in Q2, in Q3, and Q4 compared to Q1 2024. With Q1 in our books and our positive view on the next quarters, we therefore clearly confirm our expectation for EBITDA for 2024 to be higher than in the previous year, to be precise. Ladies and gentlemen, let's have together a look at our markets. our supply markets of key ingredients and energy, and the markets of our customers on the example of textile apparel. As mentioned, we saw no or very little positive development from a market perspective. Let's start with the development of apparel retail sales in quarter one, 2024. And as you know, the textile apparel market is very important to us. According to our preliminary estimates, global demand for apparel remained slightly negative in the first quarter, minus 1%. While China came out slightly positive, reflecting overall muted local demand, Europe saw a decrease of minus 4%, likely partially based on challenging macro conditions as well as overall soft consumer sentiment. That was compensated on a global level by a positive development in the U.S., which, as you might remember, saw small decline overall in 2023. These are overall textile market developments. We will look at our own figures in a bit, but I can already say that we saw much more positive development for our sustainable fibers. Let's look at the prices. And let's look at viscous, cotton, and dissolving pulp prices. And please be aware, we are looking here at generic market prices in China. not lengthening fiber prices, which are mainly traded at a premium. Viscous prices stepped up in the middle of the quarter due to good demand directly after Chinese New Year holidays, but then started to soften again and ended the quarter only a little higher than in Q4 2023. Looking at the levels in Q1 2023 or even further back, Current levels are lower, and generic viscous prices therefore continue to remain under pressure. International cotton prices rallied in February. We see this development rather pushed by speculation than based on market fundamentals. Since then, prices came down towards previous levels. Dissolving pulp prices increased throughout the first quarter supported by both tight supply and favorable demand from stable downstream operations. Let's look at energy and chemicals. Energy and chemicals costs came mainly down in the first quarter compared to the fourth quarter of 2023. However, If you compare those costs to the previous years, most prices are still elevated. Natural gas prices in Europe were still almost three times as high in quarter one 2024 compared to 2020. And coal prices in China were still higher by 57% and in Indonesia by 78% compared to 2020. Prices for caustic soda remained stable in Europe in the first quarter and decreased slightly in China. Prices in Southeast Asia, however, continued to increase in the first quarter 2024. Compared to 2020, those market prices were still 28% to 63% higher in quarter one 2024. So to sum it up, we saw still no sustainable recovery on the fiber market side, with especially prices remaining under pressure, and input costs like energy and chemicals are still on elevated levels compared to 2020. And with this, I hand over now to Nico Reiner for an update on financials.

Thank you, Stefan, and a warm welcome from my side as well. Let's start with the development of our fiber sales volume. As Stefan mentioned, the markets did not help us on the demand side. However, the measures taken in our holistic program is driving sales volumes. They increased by 24% in Q1 2024 compared to the first quarter of 2023. We saw a clear outperformance of our sustainable fibers. I would like to especially highlight the development of our Lensing EcoVero fiber sales. They increased by more than 50% since Q1 2023. Let's look at our revenues. They increased in the fourth quarter compared to the same period last year by 6% to 658 million euros. The revenue from the fiber division increased by 8.5% to 502 million euros, while pulp revenues decreased by 2.5% to 155 million euros. To remind you, The level of pulp revenues also depends on the share of pulp we use for our own production and the share that we sell externally. Pulp revenues accounted for 24% of our revenue. EBITDA significantly increased by 42 million euros to 71 million euros. This figure includes positive impact from the valuation of biological assets of 7 million euros, which is less than the previous quarters. We show here also the development of our EBITDA, excluding the positive impact from biological asset valuation and the sale of CO2 certificates, where you see steadily improving numbers reaching 64 million in Q1 2024. Let's move to the next slide. Looking at EBIT, it reached positive 1.5 million euros with depreciation and amortization being at slightly below 70 million euros. To remind you, the strongly negative EBIT in Q4 2023 was heavily affected by the impairment of 465 million euros. With the impairment, EBIT would have been at minus 1 million euros. The financial result was at minus 19 million euros in Q1 2024, and income taxes were at 9 million euros. As a result, For net profit after minorities in hybrid bond, we reported still a net loss of 32 million euros in Q1 2024, which compares to minus 80 million euros in Q1 2023. This is an improvement of 49 million euros, but our ambition, of course, is to become positive here as well. Let's move to the next slide. Looking now at cash flow, Lensing further increased its operating cash flow to 121 million euros, which compares to minus 48 million euros in Q1 2023. With regards to CAPEX, Lensing is putting a clear focus on maintenance and license to operate projects as part of its performance program and capex significantly decreased to 33 million euros. This compares to 85 million euros in Q1 2023. As a result, free cash flow increased by 220 million euros compared to Q1 2023 to 87 million euros. Free cash flow has steadily improved and has been positive now for three quarters in a row. This development shows clearly a positive impact from the measures defined in our performance program. Great working capital continued to decrease in the first quarter and was down a solid 115 million euros from the peak levels in Q1 2023. Let's move to the balance sheet. On the left side of the slide, we show the development of net financial debt. Net financial debt significantly decreased by 438 million euros or 23% compared to Q1 2023 and was below 1.5 billion euros at the end of the first quarter. On the right side, you see the development of our liquidity cushion. It increased by 406 million euros or 63% compared to Q1 2023 and reached a solid 1.05 billion euros at the end of the first quarter 2024, which is a result of our clear focus on free cash flow generation. I hand back now to Stefan, who will share an update on Lansing's holistic performance program.

Thanks a lot, Nico. Let's share a little bit of insights about our performance program after we stress its importance. As mentioned, the relevant markets for us still show no or little signs of sustainable recovery, with especially prices continuing to remain under pressure. Therefore, it is even more important that we took swift action last year and are executing the holistic performance program with the overarching goal to significantly increase long-term resilience in crisis and greater agility in the face of market changes and market challenges. The program initiatives are primarily aimed at generating free cash flow and improving EBITDA through strengthened sales and margin growth, as well as sustainable cost excellence. As you can see on the slide, it contains three pillars. Profitable top-line growth with defined sales initiatives, cost excellence in everything we do, and free cash flow generation. The overall impact of the program should result in a significant positive free cash flow. Now, let's look a little bit more in detail what this program really consists of. And here, you can see some examples of the program. More than 500 new fiber sales leads have been identified in all regions in textile and non-woven to strengthen our top-line growth. As an example, in Lyocell, we have new developments for curtains and upholstery at European brands. To become more cost-efficient, we are making significant operational improvements and are further strengthening our process expertise. To reduce our process cost, around 375 initiatives have been identified and are in execution already. One example here, we are above plan to significantly reduce heavy oil fuels consumption in Brazil with the potential to save up to 5 million euros on an annualized basis. We will continue to optimize our direct spending, including spending on raw materials, other production materials, energy and wood, as well as our indirect spending. With around 200 initiatives, indirect and indirect spends, I would just highlight one example. The comprehensive logistics tender led to price reductions for logistics across our networks. In addition, we are streamlining our overhead structure and reducing global personnel costs by eliminating up to 500 full-time positions. This is achieved by not filling positions that become vacant due to retirement and natural fluctuations and by reducing stuff. We are already well advanced in implementing those reductions. To increase the free cash flow generation even further, around 80 initiative buckets have been defined And inventories, for example, have been released by more than 130 million euros since the start of the project in 2023. As you can see, with these selected examples mentioned, the scope of the initiative is very wide. There are today more than 500 new leads and over 600 initiatives, and it is driven by everyone in Lenzing. So in a nutshell, we are using close to 8,000 brains to drive the efficiency of our company. Let's look a little bit more in detail in our top-line approach. In order to drive sales growth, we have set up a global program with around 150 employees involved in all locations and functions. As a key measure, we have set up a new sales approach, introduced a sales funnel for direct customers, for example, spinners, which we call the push, and the indirect customers like brands and retailers who qualify our product in their products, and that we call pull. We also specially strengthen ourselves in new markets and also with new customers. There is a strong focus on strengthening our performance culture. This also includes an upgrade in structure, leadership, and personnel levels. We did so by strengthening the textile management team by hiring additional frontline employees in key markets such as Turkey and China, and we drove this cultural change by installing new leadership in two of our three regions. Thanks to this significant upgrading, we now really have a very good mix of collectors and hunters in sales. And we upgraded our compensation scheme with a state-of-the-art individual sales incentive system, plus digital tools serve as support. For example, sales cockpits and sales funnels are in real time with a connection on mobile telephones and tablets of our sales force. When it comes to prices, we have completely redefined the pricing process for all products and regions and optimized the product mix to increase our margins. The preliminary results. Since the start of the program and as of March, we have already defined over 337 new leads in the push area and over 177 new leads in the pull area. And the good news for last, the leads are increasing day by day. Let's take now a closer look at the cost excellence pillar of the performance program. Overall, we are aiming for a cost reduction of at least 100 million from 2025 on. And we expect to achieve at least 50% of this in 2024 already. And as you can see, we are ahead of our plan with regards to the savings. However, important to notice, the full impact of our savings is not yet fully reflected in the P&L of Q1, as some of the savings go through the net working capital before finally hitting the P&L. What we show here in the green bar on the right-hand side is only what is already included in the P&L. Our actuals are, among others, also driven by accelerated ramp-up of the program. We can rightly be satisfied with our success so far, and, and that is important to notice, there are still major improvements ahead of us in order to maximize our full Ladies and gentlemen, the performance program is of crucial importance for Lansing. It serves to deal with the current crisis. In addition, we must be able to make our company fit again for the future. The clear goal is profitable growth. That's why strengthening the board here is important and right. The Chief Transformation Officer has been appointed on a temporary basis. Together with the existing board, we can leverage the already identified and potential, new potentials even more quickly. With Walter Bickel, we are able to gain a very competent and experienced manager. This frees up Nico Reiner, Christian Skillig, and myself. for our core tasks, particularly sales growth, operations improvement, and giving the right strategic direction. Let's turn to the outlook. Let us begin the outlook with looking at what players in the value chains have communicated this year so far. You see here some quotes from brands active in the textile sector with a focus on what they expect from this year, and as an indicator about expected upcoming market demand developments. Adidas stated that they built solid growth for this year and are more optimistic about 2025 and beyond than the results for this year. Columbia Sportswear also sees the current environment as challenging, and expect growth to come back at a later stage in the year. And Levi Strauss feels improvement on the consumer side supported by evidence with also positive wholesale pro book orders in second half of this year. To sum it up, apparel brands remain cautious for at least the first half of this year, but more optimistic for the longer term. But let's switch now to us and our own expectations for the quarters to come. I can clearly say that we started 2024 better than originally expected. That is a good basis. We cannot predict when and to what extent a full market recovery will occur. However, it will come. So it is up to us what we make out of the upcoming quarters. And one thing is certain, we are not relying on tail rings from the market. We take swift action. We assume stable demand impulse and have a cautious outlook on the generic fiber market development in 2024. We continue to have a laser focus on exploiting the full potential of the performance program and to further drive our operational results. As a result, we expect further improvement of our top line, which is also reflected in a good and healthy order book in the beginning of Q2. With regards to pricing, we expect ourselves to increase average prices compared to Q1, driven by our performance program and our specialization strategies. On the cost side, we expect increasing positive impact in the course of the year with the full potential clearly not included in the Q1 figures yet. Ladies and gentlemen, Q1 was already better than expected at the start of the year, despite a weak market. And we definitely see further upside on our operational results. in Q2, in Q3, and Q4 of 2024 compared to Q1 2024. We therefore clearly confirm our expectation for the EBITDA in 2024 to be higher than in the previous year. And how do we increase now further our performance of the company? very simple through three directions. We will master the crisis through cost excellence. We strengthen the core by improving the quality of our margins, and we will be shaping the future further by increasing our innovation leadership. As a result, we will emerge stronger from the crisis and will be fit for the future. I would like to thank you on behalf of the board for your intention, and we are looking forward to your questions. With this, I will hand over back to the operator for the Q&A.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to use only handsets and eventually turn off the volume from the webcast. Anyone who has a question may press star and one at this time. One moment for the first question, please. And the first question comes from Christian Feitz from Kepler Schaffer. Please go ahead.

Yes, good afternoon, everyone. Thanks for taking my two questions, if I may. First of all, the spread between Lysol and standard viscose is relatively small at present. When would you expect this to change for the better, obviously? And then second, the Thailand Lysol plant is in its second year of operation now. When do you expect the first larger maintenance shutdown, if necessary? Thank you.

Thank you. Thank you, Christian. First question with regard to the spread between Lyocell and DISCO's prices. I assume this is market prices. So when we expect that to change, I would hand it over to .

Thanks a lot for the question. I think, first of all, there is nothing like the lyocell price. Even in the lyocell segment, we have specialty products which have indeed quite a spread versus viscous, and there are what we call our 10-cell lyocell classic. And here, the price development depends for sure also on a stronger demand from the upside market. as well as our efforts on branding our product and driving the specialty strategy further. And I take immediately your second question. The Thailand plant is a normal operation and it has, as any of our plants, a normal regular schedule. for shutdown and we did also a shutdown in 23 and we will do again in every year a shutdown. The shutdown period varies between the years depending on the program we have to do as an overhaul.

Okay, thank you very much.

And the next question comes from Sean from Chronox Research. Please go ahead.

Good afternoon. Thanks for the time. The first question is just around dissolving wood pulp dynamics. I think in your outlook statement, you sort of flagged a stable demand outlook. I think it would be useful if you could perhaps provide a little bit more color on how you sort of see the dynamics in the next three to six months bringing in the supply side. That's my first question.

Yeah, so Stefan, hit up this one.

Yeah. As you can see, our pulp, which we produce, is mainly for our own consumption. On the external market, if you look at the market there, we forecast a pretty stable development of the demand in the dissolved water pulp market.

Okay. Okay, that's great. And then just on the energy front, obviously you calling it out is quite a significant headwind and rightfully so. Could you just remind us your level of backward energy integration and then just sort of link to that sort of what percentage of cash costs energy perhaps was during the quarter? Thanks.

Okay. Let me take the first part of the question, which is the backward integration. And here, it depends on the site. And you have seen that maybe in former publications in our Lansing site, so our headquarter and largest site here. We have a backward integration, which is well above 90%. And we have added to our energy mix, you know, photovoltaic, But we have other plants where we are in a kind of a chemical plant set up, so we are getting energy from local sources. In terms of giving details on energy cost per site, we don't do that.

That's fine. Thank you for that. Sorry, just going back to the energy integration. So at a group level, roughly, what is that as a percentage of total?

Well, sorry, I got your question. To give you a number, I would have to come back to you. As I said, we have various levels on the various sides, and Sebastian Knuth will come back to you with the correct number.

Excellent. Thank you for the time.

So it seems that there are no further questions at this time, so I would like to turn conference back over to Stefan Sielaff for any closing remarks.

Yeah, thank you, Operator. Thanks a lot, ladies and gentlemen, for joining the call and giving attention to Lansing. To sum it up, the market recovery is still lacking, but we at Lansing saw continued and increasing positive impacts from our holistic performance program, both on top line and bottom line in the first quarter. Therefore, Q1 was already better than expected despite a weak market, and we definitely see further upside on the operational results in Q2, Q3, and Q4 compared to Q1 2024. So stay tuned. We will give you the next update on the 7th of August with our half-year results. I close the call.

Thanks a lot for your attention.